Monday, May 16, 2011

There's at least one person in Washington who has a grasp of our fiscal problems, and a comprehensive and sensible approach to fixing them: Paul Ryan. Here, some excerpts from his speech today to the Economic Club of Chicago:

...the unsustainable trajectory of government spending is accelerating the nation toward a ruinous debt crisis.

This crisis has been decades in the making. Republican administrations, including the last one, have failed to control spending. Democratic administrations, including the present one, have not been honest about the cost of the tax burden required to fund their expansive vision of government. And Congresses controlled by both parties have failed to confront our growing entitlement crisis. There is plenty of blame to go around.

This trajectory is catastrophic. By the end of the decade, we will be spending 20 percent of our tax revenue simply paying interest on the debt – and that’s according to optimistic projections. If ratings agencies such as S&P move from downgrading our outlook to downgrading our credit, then interest rates will rise even higher, and debt service will cost trillions more.

This course is not sustainable. That isn’t an opinion; it’s a mathematical certainty. If we continue down our current path, we are walking right into the most preventable crisis in our nation’s history. Stable government finances are essential to a growing economy, and economic growth is essential to balancing the budget.

... chasing ever-higher spending with ever-higher tax rates will decrease the number of makers in society and increase the number of takers. Able-bodied Americans will be discouraged from working and lulled into lives of complacency and dependency.

... when it becomes obvious that taxing the rich doesn’t generate nearly enough revenue to cover Washington’s empty promises – austerity will be the only course left. A debt-fueled economic crisis will force massive tax increases on everyone and indiscriminate cuts on current beneficiaries – without giving them time to prepare or adjust. And, given the expansive growth of government, many of these critical decisions will fall to bureaucrats we didn’t elect.

First, we have to stop spending money we don’t have, and ultimately that means getting health care costs under control.

Second, we have to restore common sense to the regulatory environment, so that regulations are fair, transparent, and do not inflict undue uncertainty on America’s employers.

Third, we have to keep taxes low and end the year-by-year approach to tax rates, so that job creators have incentives to invest in America; and

Fourth, we have to refocus the Federal Reserve on price stability, instead of using monetary stimulus to bail out Washington’s failures, because businesses and families need sound money.

There is widespread, bipartisan agreement that the open-ended, fee-for-service structure of Medicare is a key driver of health-care cost inflation.

The disagreement isn’t really about the problem. It’s about the solution to controlling costs in Medicare. And if I could sum up that disagreement in a couple of sentences, I would say this: Our plan is to give seniors the power to deny business to inefficient providers. Their plan is to give government the power to deny care to seniors.

We have to broaden the tax base, so corporations cannot game the system. The House-passed budget calls for scaling back or eliminating loopholes and carve-outs in the tax code that are distorting economic incentives.

We do this, not to raise taxes, but to create space for lower tax rates and a level playing field for innovation and investment. America’s corporate tax rate is the highest in the developed world. Our businesses need a tax system that is more competitive.

A simpler, fairer tax code is needed for the individual side, too. Individuals, families, and employers spend over six billion hours and over $160 billion per year figuring out how to pay their taxes. It’s time to clear out the tangle of credits and deductions and lower tax rates to promote growth.

Update: here's an alternative proposal that isn't quite as well thought out:

22 comments:

Anybody who does not consider repudiating the bush tax cuts does not care about the deficit.

While it's true that taxing the rich won't solve the problem, it is also true that the two following facts are clear: the rich have the lowest tax rate in 50 years. The gap between rich and the poor is the biggest in 50 years.

Conveniently ignoring these two facts, I can only assume because of the desire to appeal to the constituency of the undecided republicans, I can only hope people will see through this.

In general, I agree with Ryan, but too often he retreats to politically safe Republican shibboleths instead of bona fide deficit-fighting.

1. Defense Spending? When we spend double in real terms what we spent just 10 years ago (and that level was bloated by Cold War ossification), and we face no serious military threats, surely this topic needs to be addressed.

2. No mention of a plan to voucherize the Veterans Affairs Department. If vouchers are good for Medicare, they are even better for the VA. Why no Ryan support for VA vouchers?

3. Homeland Security. Is not this department a typical federal hysterical over-reaction, in this case to a small terrorism threat?

4. USDA. Do we really need this department at all anymore? Why?

5. All the pettifogging about the Federal Reserve and price stability--when the core rate of inflation is below the Fed target of two percent inflation? When the Fed can borrow money for 10 years at 3.19 percent? How stable do you want?

The endless caterwauling about the Fed seems like a completely misguided concern.

I wholeheartedly support simplifying the tax code--indeed, I would just eliminate corporate income taxes, and replace with gasoline or a national sales tax. Corporate income taxes have become a minor source of federal revenues.

PS Donald J. Boudreaux is chairman of the department of economics at George Mason University in Fairfax, Va. (right wing to the max). In 2006 he authored a pair of editorials stating the CPI seriously overstated inflation.

Sheesh, we are at under 2 percent on the CPI core and that is overstated? Why carp about price instability now?

The day that the GOP is ready to cut farming subsidy is the day they are ready to give up, politically, on the midwest. The day the GOP gives up on oil subsidy is the day they will decide that they don't need any money to run for office.

Subsidies are the life and blood of a politician's re-election financing.

Finally, Mr. Ryan believes that everyone but his contributors must pay for America's damaged balance sheet. How courageous is that?

A politicians can see the problems, but if he is unable/unwilling to address the full scope of the solutions then he is but a coward.

Randomly assign these indigents to medical insurers and require to accept and cover them.

If persons want extended life medicine for say cancer, diabetes, and the like, they can buy out-of-pocket riders or policies offered from competitors.

[2] Make Social Security voluntary.

All other welfare, such as TANF, SNAP, Section 8, unemployment insurance, should be part of a voluntary socialist system.

Those whose philosophy is socialism can opt-in. If they want to receive any of the temporary benefits during their years, they must continue to pay in when they can. If they want to collect Social Security after reaching the age finish line, they will have needed to contribute to some amount.

Such a system would provide for those struck with disability.

The start up of such a system would need to cover those expecting to collect within the next 15 to 20 years, who have planned their lives around Soc. Sec.

[3] Let med insurers compete across states borders.

[4] Break up the oligopoly of medical insurers to populate America with many insurers of equal size and let them fight it out in true competition, forcing innovation.

[5] Eliminate all expense deduction from corporate taxation

[6] Reduce the corporate tax (which is a share of the profits) to between 5 and 8%

[7] Either

[a] Eliminate all personal income tax deduction.

Have two rates -- 14% for under and to $100,000, 28% for over $100,000

[b] Eliminate personal income taxation. Impose a national sales tax (not a VAT) of say 16%.

Note: a VAT is a tax on capital (intermediary products that yield goods needed in steps production). There is no greater anti-capitalist, anti-productive tax than a VAT.

[5] Repeal the 17th Amendment.

Restore senators to the role of states' ambassadors, which gives states' legislators the right of recall. This kills a significant amount of lobbying influence as it forces lobbyists to pander to 1,000s of states' legislators and discourages almost all covert lobbying.

[6] Restore popular representation to the House to at least twice the founders' ratio of 1:30,000.

This discourages covert lobbying as well and makes House members more responsive to local state of their districts.

im not sure hes Ryan is talking about inflation. I think he means bubbles in the prices of assets, as in real estate, oil, tech stocks, agriculture, debt, economics degrees, etc. The Fed has provided the lighter fluid to fuel the asset bubbles of the past 2 decades.

I do get it. According to my own calculations, repealing the bush tax cuts will only net 4% reduction in the deficit. It has nothing to do with jealousy or anger, but the cold hard facts. Yet I am still pro-repealing the tax cuts for the rich, even though it nets only 4%. Why? Consistency. The main idea of my message was that even ignoring this small "exemption" from what should be done, means your talking your book. Ryan is not consistent in his message if he does not repudiate the Bush tax cuts.

"Bush tax cuts" is mere rhetoric. What tax cuts? A record sum of taxes were collected during the Bush years. Nothing was cut.

Marginal tax rates were lowered, but a lowering of rates isn't a "cut".

Since the collection of income taxes, no Congress in U.S. history has ever cut taxes.

Presidents have nothing to do with passing legislation, which encodes taxes rates. Merely, Presidents sign into law what gets presented to them.

That said, marginal rates are irrelevant to the government as a whole. Regardless of whether the top rate has been 94% of 35%, the U.S. has never collected more than than 19% of GDP in any fiscal year.

Ballyhooing about marginal tax rates as if such is meaningful reveals profound misconception about taxation and public finance.

@Smack You can discuss into the end of eternity whether progressive tax fair tax or any other tax system provided better results. You can discuss a mile away whether the bush tax cuts were truly tax cuts. It doens't change the fact that if you don't talk about the Bush tax cuts, and at the same time you talk about being the one person to reduce the deficit, you are not serious at all about reducing the deficit, but just talking your book.

The problem with Ryan's plan is that it will never sell -- austerity for the masses is not a hot ticket item -- that leaves only monetary expansion (inflation) or default -- the economic crisis in America can only be resolved by three means: default, austerity, or inflation -- the US Congress will not allow a default (Congress would be unemployed), and austerity measures will never be voted in by a majority of Congress -- that leaves only (drum roll please) inflation -- by the way, if the Federal Reserve does not get its austerity plans passed by Congress, then the Federal Reserve will "print" the money needed to save Federalism -- history is my evidence...

You have hallucinated. No where in my comments can you find any words that express achievable better results from "fair tax" or "progressive tax."

The lowering of marginal tax rates during the Bush administration, what rhetorically gets accepted as "the Bush tax cuts" has nothing to do with deficit reduction.

A deficit is a fiscal year shortfall in revenue against spending plans.

As is true for an individual, so is true for government. To reduce a deficit, one needs to borrow less and spends less.

No amount of mucking around with marginal rates is going to get the U.S. to collect more than about 19% of GDP in any fiscal year, which is the upper limit of collectible taxes before humans change their behavior.

@Dr William J McKibbin

Americans shall be put to austerity, the same as the Greeks, eventually, when the U.S. can no longer buy bonds at the rate needed to roll over the debt. In short, when cumulative debt as a percentage GDP exceeds an uncomfortable threshold for those who sell cash and buy bonds from the U.S., they are going to buy less bonds.

The alternative is endless quantitative easing -- Fed Res bankers buying U.S. government debt with conjured bank credits -- and do so shall lead to hyperinflation.

When you postate that tinkering around with tax rates don't matter, because it doesn't bring revenue you are using arguments made by fair tax supporters vs. progressive tax. It is very relevant, so I brought it up.

Also, I have calculated the effect not to be net zero. It nets 4% reduction in the deficit.

I am not using arguments of made by fair tax supporters vs. progressive tax.

You have hallucinated to fit a fantasy reel that is playing in your head.

Rather than hallucinate, why not ask me, merely from where I've come up with the factual data?

It's irrelevant what you have calculated.

Truth remains. Regardless of what top marginal tax rate Congress imposes by law, never has the U.S. government managed to collect a sum of money in any fiscal year that has exceeded 19% of GDP for that fiscal year.

All manners of top marginal rates have been tried, from as high as 94% to as low as 35% (see: http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Federal_income_tax_rates )

So you can continue to suffer cognitive dissonance and defend false beliefs or you can relax and embrace truth.

Tinkering with marginal rates amounts to nothing more than Political Theater that plays well for the mass of mediocre IQ Americans who are jealous of all those superior to them, those others who by their own craft and perseverance have learned how to better interact with others and gain great income.

A deficit is a fiscal year shortfall in revenue against spending plans.

As is true for an individual, so is true for government. To reduce a deficit, one needs to borrow less and spends less.

To shrink a cumulative debt, one needs to pay it off.

The political establishment favors quick surges of money accretion, which rapidly reduce the buying power of the money unit, punctuated by periods of pause. Otherwise, too many would become far too disgruntled over sudden realization over a significant loss of buying power.

Denying that you are using arguments by pro fair tax vs progressive tax, yet using the exact same arguments, can only mean one thing, denying "truth". If you come up independently with these arguments it doesn't matter, it's still the same kind of arguments. It is mind-boggling that you talk about "truth", when you yourself have realized "truth" can be bended and the word itself doesn't mean much, as you say it is pure theather. Yet at the same time you do not realize what theather I am talking about.

I feel you have not realized the core of my argument, which is the hypocrisy of claiming to be the one to reduce the deficit, yet not talking about the Bush tax cuts. It is not about the reasonableness of effectiveness of the Bush tax cuts, though implied it indeed would have had only a 4% effect in reducing the deficit, so implied it has a small effect. It is about the fact that this is pure theather that I hope people will see through.

Certainyl there are fallacies in your "truth".You say:"Regardless of what top marginal tax rate Congress imposes by law, never has the U.S. government managed to collect a sum of money in any fiscal year that has exceeded 19% of GDP for that fiscal year."However this has no effect on my argument. In fact this is irrelevant to the discussion. I hope you realize that!

You say:"A deficit is a fiscal year shortfall in revenue against spending plans.

As is true for an individual, so is true for government. To reduce a deficit, one needs to borrow less and spends less.

To shrink a cumulative debt, one needs to pay it off. "You miss the obvious point that increasing revenue makes deficit smaller also. Also nobody is talking about shrinking debt. They are talking about the deficit. If they were talking about shrinking debt, they would be talking out their ass.

You miss the obvious point that increasing revenue makes deficit smaller also.@John Short

And now you're being daft and you're revealing perhaps mental instability.

You would have firm ground to stand upon if you claimed "Your argument sounds like the one proffered by the Fair Tax proponents."

Yet, you have not done so. In short, you suck at ad hominem by innuendo.

For the good readers of this blog, show, point-for-point what is the Fair Tax argument and exactly how my stance compares.

You can't. You're an intellectual fraud, John Short.

Second, there's no such thing as "the Bush tax cuts." That's mere rhetoric.

Every year during the Bush years, the IRS collected a RECORD SUM of taxes. Taxes were not cut.

Only marginal tax rates were cut and those cuts were done so by the U.S. Congress.

In short, John Short, you don't get how the government works, how law formation works in the U.S.A. at the federal level.

Your claim that there are "Certainyl there are fallacies in your "truth"" amounts to asinine expressed mental illness.

The historical record proves beyond doubt that regardless of what top marginal marginal rates the U.S. Congress has imposed, whether 94% or 35%, the U.S. has never been able to collect a sum more than 19% of GDP in any fiscal year.

That goes exactly to your expressed idiocy about the so-called "Bush tax cuts."

I disagree. Both these arguments can be true at the same time. Which makes your argument impossible to be a counter-argument. That's why it does not influence my argument.

Let me explain: You might not realize that a 4% difference in the deficit I have calculated, caused by Bush tax cuts is only 0,4% of GDP. GDP is roughly 10 times more than the deficit.

A 0,4% difference won't necessarily ever influence your argument, which is that total taxation never goes above 19% of GDP. Indeed, if total taxation is 18%, and we increase top marginal tax rate to 100%, it would give rise to a 18,2-18,4% total taxation of GDP. That falls short of the 19% of GDP.

And I haven't even taken into account your argument about human behavior which will skew the result even more. And this argument is actually the same argument used by the fair tax proponents. You can go to fairtax.org or any other fair tax site and you can see for yourself.

And I don't even know why you call the Bush tax cuts not really official tax cuts. Everybody else does it, it much easier to discuss matters that way. Just go with the flow.

In summary, since both of our arguments can be true at the same time, my opinion is that my argument has not actually been invalidated, even if you think otherwise.

And this is not even my main argument. Which is more about the hypocrisy of Paul, than about the increasing revenue = reducing deficit.

Lowering marginal tax rates isn't a cut in taxes. Why go with the flow of those easily suckered by rhetoric and because so, getting the whole of the problem wrong?

Monkeying around with marginal rates soothes the anger of those jealous against persons superior to them but does nothing to puncture the upward bound of fiscal year revenue collect, a limit of 19% of GDP in any fiscal year.

As is true for an individual, so is true for government. To reduce a deficit, one needs to borrow less and spends less.

Attempting to get revenue to to the 19% limit does nothing to end deficit spending if the bills Congress incurs exceeds the revenue collected to pay those bills, a revenue that gets constrained by the 19% limit.

To end the deficit means a cut in spending to at least equal to revenue collected.

For FY 2010, the U.S. collected $2.16 trillion in tax revenue. Spending should not have exceeded such if Congress wanted to operate without a deficit.

Your opening salvo was expression of the Politics of Jealousy, a kind of politics that has nothing to do with truth and public finance.

You wrote, "Anybody who does not consider repudiating the bush tax cuts does not care about the deficit.

"the rich have the lowest tax rate in 50 years. The gap between rich and the poor is the biggest in 50 years."

Yet, the truth remains:

1. There's not such thing as "Bush tax cuts"

Marginal rates were lowered during the GW Bush years and that was an act of the U.S. Congress, which Bush signed into law.

Reduction of marginal rates is not a cut in taxes. The U.S. collects a record sum of taxes every year.

2. Marginal rates are irrelevant, whether at 94% or 35%. The U.S. cannot collect above 19% of GDP in any FY because humans alter their behavior.

3. It's irrelevant what income some have vs others. "Income gap" is Church of Academia fantasy and amounts to nothing more than the Politics of Jealousy.

The history of humans is a history of a few having much and the many having far less, precisely because of differences in DNA and that there are far fewer smart, ambitious people than the many who would be deemed dumb and lazy.

--

As to your OCD-like obsession over the FairTax.org people, I cannot help you John.

Yet, you have yet to post their claims and then attempt to match mine, point-for-point.